VAT increase on food in restaurants in Germany: positive and negative implications

On January 1, 2024, VAT on food in restaurants rose again to 19% in Germany, after being reduced to 7% in 2020 to help businesses affected by the COVID-19 pandemic.
 
This rise has had both positive and negative implications.
 

Positive implications:

 
Fundraising: The German government has defended the measure, arguing that it is necessary to raise funds to finance aid measures for families and businesses affected by the war in Ukraine. According to the German Ministry of Finance, the increase in VAT on food in restaurants will mean an additional collection of about 2 billion euros per year.
 

Negative implications:

 
Reduction in demand: The increase in VAT can reduce the demand for food in restaurants. This is because consumers will have to pay more for their meals, which may lead them to reduce the number of times they eat out. According to the German Hotel and Restaurant Association (DEHOGA), the VAT increase could lead to the closure of around 12,000 hospitality businesses in Germany.
 
Increase in inflation: The increase in VAT can contribute to the increase in inflation. This is because VAT is an indirect tax that is reflected in the final price of goods and services.
 
Impact on hospitality workers: The VAT increase may have a negative impact on hospitality workers, who could see their income reduced if demand for food in restaurants decreases.
 
Increase in inequality: The increase in VAT can increase inequality, since households with less income are those that tend to dedicate a greater part of their budget to food.
 
Impact on tourism: The VAT increase can negatively affect tourism, as tourists may choose to eat out less if prices are higher.
 
In general, the implications of the VAT increase on food in restaurants are negative. The measure may reduce demand for food in restaurants and contribute to increased inflation.
 
The German government has defended the measure, arguing that it is necessary to raise funds to finance aid measures for families and companies affected by the war in Ukraine. However, experts believe that the measure could have a negative impact on the German economy.

The increase in VAT can reduce the demand for food in restaurants.